Gardial GreenLights, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand itsmanufacturing capacity with a $10 million investment in new machinery. Gardial plans to maintain its current 20% debt-to-total-assets ratio for its capital structure andto maintain its dividend policy in which at the end of each year it distributes 35% of the year's net income. This year's net income was $8 million. How much externalequity must Gardial seek now to expand as planned? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000.Round your answer to two decimal places.million$

Capital structure is an important tool for the success of the business. The Essential elements of a…

Answered: Gardial GreenLights, a manufacturer of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 8P

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Lente, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a P15 million investment in new machinery. Lente plans to maintain its current 30% debt-to-total-assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year it distributes 55% of the year’s net income. This year’s net income was P8 million. How much external equity must Lente seek now to expand as planned?
Gardial GreenLights, a manufacturer of energy-efficient lighting solutions,has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $15 million investment innew machinery. Gardial plans to maintain its current 30% debt-to-totalassets ratio for its capital structure and to maintain its dividend policy inwhich at the end of each year it distributes 55% of the year’s net income.This year’s net income was $8 million. How much external equity mustGardial seek now to expand as planned?
Blue Co. has a capital structure that consists of 25% equity and 75% liabilities. The company expects to report P3,000,000 in net income this year, and 50% of the it will be paid out as dividends to the shareholders. Determine how large must the firm’s capital budget be this year without resorting to issue any new common stock.
Berea Resources is planning a $75 million capital expenditure program for the coming year. Next year, Berea expects to report to the IRS earnings of $35 million after interest and taxes. The company presently has 24 million shares of common stock issued and outstanding. Dividend payments are expected to increase from the present level of $14 million to $15 million. The company expects its current asset needs to increase from a current level of $26 million to $29 million. Current liabilities, excluding short-term bank borrowings, are expected to increase from $17 million to $19 million. Interest payments are $5 million next year, and long-term debt retirement obligations are $7 million next year. Depreciation next year is expected to be $11 million on the company’s financial statements, but the company will report depreciation of $14 million for tax purposes. How much external financing is required by Berea for the coming year? Enter your answer in millions. For example, an answer of $1…
Tartan Industries currently has total capital equal to $4 million, haszero debt, is in the 40% federal-plus-state tax bracket, has a net income of $1 million, anddistributes 40% of its earnings as dividends. Net income is expected to grow at a constantrate of 3% per year, 200,000 shares of stock are outstanding, and the current WACC is12.30%.The company is considering a recapitalization where it will issue $2 million in debtand use the proceeds to repurchase stock. Investment bankers have estimated that if thecompany goes through with the recapitalization, its before-tax cost of debt will be 10% andits cost of equity will rise to 15.5%.a. What is the stock’s current price per share (before the recapitalization)?b. Assuming that the company maintains the same payout ratio, what will be its stockprice following the recapitalization? Assume that shares are repurchased at the pricecalculated in part a.
Dahlia Colby, CFO of Charming Florist Ltd., has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 10 percent to $330 million. Current assets, fixed assets, and short-term debt are 25 percent, 70 percent, and 15 percent of sales, respectively. Charming Florist pays out 25 percent of its net income in dividends. The company currently has $121 million of long-term debt and $49 million in common stock par value. The profit margin is 9 percent. 1. Based on Ms. Colby’s sales growth forecast, how much does Charming Florist need in external funds for the upcoming fiscal year? 2. Construct the firm’s pro forma balance sheet for the next fiscal year 3. Calculate the external funds needed
Berea Resources is planning a$75million capital expenditure program for the coming vear. Next year, Berea expects to report to the IR5 earnings of s40 milion after interest and tanes The company presently has 22 milion shares of commoo stock issued and outstanding. Dividend payments are expected to increase from the present level of s8 millon co 512 manion, The company expects its current asset needs to increase from a current level of$22millon to$27malion, Current liabilibes, exduding short-tern bank berrowirgs, are expected to incease from$13million to$18milion. Interest payments are s5 milion next year, and long-term debt retiremert obligations are$6million next year. Deoreciation next year is expectad to be$16million on the company's financial statements, but the company will report depreciation of$19million for tax purposes. How much extemal financing is required by Berea for the coming yean? Enter your answer in malions. For example, an answer of tt milion should be enternd as 1,…
Crarytown Motors is expected to have an EBIT of $680,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $45,000, $9,000, and $40,000respectively. All cash flow items are expected to grow at 6 percent per year for two years. After Year 3, the CFA is expected to grow at 3 percent indefinitely. The company currently has $3.5 million in debt and 250,000 shares outstanding The company's WACC is 9.5 percent and the tax rate is 20 percent. What is the present value of terminal value? Show your steps.
On January 1, 2009, you examine two unlevered firms that operate in the same industry, have identical assets worth $80 million that yield a net profit of 12.5 percent per year, and have 10 million shares outstanding. During 2009, and all subsequent years, each firm has the opportunity to invest an amount equal to its net income in (slightly) positive-NPV investment projects. The Beta Company wants to finance its capital spending through retained earnings. The Gamma Company wants to pay out 100 percent of its annual earnings as cash dividends and to finance its investments with a new share offering each year. There are no taxes or transactions costs to issuing securities. Calculate the overall and per-share market value of the Beta Company at the end of 2009 and each of the two following years (2010 and 2011). What return on investment will this firm’s shareholders earn? b. Describe the specific steps that the Gamma Company must take today (1/1/2009), and at the end of each of the next…

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